I took a half sized position in Prospect Capital Corporation today for $10.97.
I am going to tell you this once and only once (actually, at least ten more times from now).
This is black magic calculus. If you are honed in the dark arts and know how to keep from losing your vitals, you may do what you like. However, if you do not immediately know what this company is doing (and I use this very sparingly, as in reality they are so deep in financial muck no one truly understands what they are doing, likely not even them…) then you would have to be some kind of jackass to just mindlessly follow this trade.
I like the company for their extreme growth and absurd cheapness, but the market does not trust them with a multiple for a reason – this company is everything people learned to hate in 2009. Also, the immediate issue of interest rates rising (near term catalyst) will create headwinds for them. There were also recent bouts with the SEC and a boat load of lawsuits from shareholder groups.
I am simply assuming that the companies employees are living beings that will adapt to these problems. And that they can continue growing at the rate they have been for a little while longer, while managing to pay me more than 12% annually.
This may not work out, but I’m up enough this year to gamble a little more.
Don’t be stupid.
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I’ll pass but will enjoy the show.
Do these dark arts companies not use the financial magic of variable rate loans to protect from rising interest rates?
I have considered PSEC a few times in the past but will now follow Herr Thaler in to take the plunge. Like the yield, with a tight stop.
I really like the idea. Because they are operating in a hated segment of the market, there is little competition from other BDC’s for the loans they are taking on.
Also, Soros Fund and Greenblatt bought some in Q2 (small amount, though).
Good luck to you on this one.